European Commission suspends EU ETS allocation for UK starting 2019

According to a press statement from 19 December 2018, the European Commission (EC) has started implementing the first measures of its Contingency Action Plan to prepare for a “no-deal” scenario in which the United Kingdom (UK) would leave the European Union (EU) on 29 March 2019, without a transitional deal. The implementation of the first parts of the Contingency Plan comes in response to the uncertainty regarding the UK’s ratification of the Withdrawal Agreement, as well as the European Council’s call for preparations to intensify at all levels and for all potential outcomes.

The measures adopted affect areas where a "no-deal" scenario would create major disruption for citizens and businesses in the EU, among them financial services, air transport, customs, and climate policy. Regarding climate policy, the Contingency Plan contains provisions designed to ensure that a "no-deal" scenario does not affect the functioning and the environmental integrity of the EU ETS. The main provision is a decision to temporarily suspend for the UK the free allocation and auctioning of emissions allowances, as well as the exchange of international credits, effective from 1 January 2019. This means that there will not be any European Emission Allowances (EUA) auctions in the UK in the first quarter of 2019. However, the suspension will not apply to transfers of allowances already in circulation.

The Contingency Plan was published on Nov. 13 2018 in the EC’s second Brexit preparedness Communication and includes measures for damage limitation in case of a no-deal Brexit. One day later the EU and the UK agreed on the terms of the Withdrawal Agreement. On Dec. 13 2018, the European Council confirmed to endorse the Withdrawal Agreement, expressing the intention to proceed with its ratification as soon as the UK ratifies it in accordance with its own constitutional requirements. A parliamentary decision of the UK on the adoption of the Withdrawal Agreement is still pending.

According to an official statement from the UK Department for Business, Energy and Industrial Strategy (BEIS) from Oct. 12 2018, in case of a no-deal scenario, the UK will uphold its carbon pricing commitments by introducing a Carbon Emissions Tax on all stationary installations currently under the EU ETS and in the long run consider four carbon pricing options: staying in the EU ETS, establishing a national ETS (standalone or linked to the EU ETS) or implementing a carbon tax.